Federal flood insurance program $24.6 billion in the hole

By Deborah Nelson

The federal program that subsidizes flood insurance for millions of homeowners is billions in debt because claims continue to exceed premium payments, an April report from the U.S. Government Accountability Office said.

The National Flood Insurance Program owes the U.S. Treasury $24.6 billion, borrowed to meet claims and “other expenses.”  That includes $1.6 billion to pay claims on a series of floods in 2016.

“FEMA is unlikely to collect enough in premiums to repay this debt,” GAO’s report notes.

The Federal Emergency Management Agency oversees NFIP.  Congress created the program in 1968 to help reduce Federal disaster costs.  It expires in September, although Congress is expected to reauthorize it. 

U.S. Senators Bill Cassidy (R-LA) and Kristen Gillibrand (D-NY) have introduced draft legislation — (HERE) — (SUMMARY HERE) — that would extend the program through 2027.  That measure encourages more private insurer participation, and includes policy subsidies and mitigation funding.

As of February, 4.98 million active NFIP policies were covering $1.2 trillion in potential claims, according to FEMA.

That includes 19,880 policies covering $4.4 billion in Escambia County; 13,178 policies covering $3.84 billion in Santa Rosa and 20,603 policies covering $4.95 billion in Okaloosa.

But premiums paid by homeowners in flood zones aren’t generating enough revenue to pay claims and don’t reflect the full, government-subsidized loss risk incurred by current policies, GAO said.

The agency’s report includes potential changes to make the program solvent.  Some would make flood insurance less affordable.

*Canceling the debt would reduce the need to raise rates to pay interest and principal on existing debt.

*Raise premium rates and add “means tested” government subsidies to make them more affordable.

*Fund subsidies with regular budget appropriations to make them more transparent.

*Increase “mitigation” measures, such as raising homes on stilts, to reduce risk.

*Increasing the flood zones in which homeowners are required to buy insurance beyond “highest risk,” to add revenues and further spread risk.  “However, doing so could face public resistance and create affordability challenges for some, highlighting the importance of an accompanying affordability assistance program,” the report notes.

*Encourage private insurers to participate.

*Increase funding to NFIP to offset any revenues lost to private participation.

Homeowners in FEMA-mapped special flood hazard areas (SFHA) whose property is secured by federally backed mortgages or mortgages obtained from federally regulated institutions generally must purchase flood insurance.

“SFHAs, which are depicted on NFIP maps, represent the land areas that would be submerged by the floodwaters of the “base flood” or a flood that has a 1 percent chance of being equaled or exceeded in any given year,” per GAO.


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